RNS Announcement
14 June 2019
For Immediate Release
TalkTalk Telecom Group PLC (the "Company")
Publication of Annual Report 2019 & Notice of Annual General Meeting
The following documents have been made available to shareholders:
· Annual Report 2019
· Notice of 2019 Annual General Meeting
· Form of Proxy for the 2019 Annual General Meeting
In accordance with Listing Rule 9.6.1 a copy of each of these documents has been uploaded to the National Storage Mechanism and will be available for viewing shortly at: http://www.morningstar.co.uk/uk/NSM
These documents are also available to view and download from the Company's website at: http://www.talktalkgroup.com
Copies of the Annual Report 2019 and Notice of the 2019 Annual General Meeting may also be obtained from:
Company Secretary
11 Evesham Street
London
W11 4AR
Extracts from the Annual Report 2019 in compliance with the Disclosure and Transparency Rule 6.3.5 ("DTR 6.3.5")
The information below, which is extracted from the Annual Report 2019, is included solely for the purpose of complying with DTR 6.3.5. It should be read in conjunction with the Company's Full Year results announcement for the 12 months to 31 March 2019 issued on 23 May 2019 (at: https://www.talktalkgroup.com/articles/talktalkgroup/2019/FY19-Preliminary-Results-presentation- )
Together these constitute the material required by DTR 6.3.5 to be communicated to the media in unedited full text through a Regulatory Information Service. This material is not a substitute for reading the full Annual Report 2019. All page numbers and cross-references in the extracted information below refer to page numbers in the Annual Report 2019.
For further information please contact:
Tim Morris, Company Secretary +44 (0)203 417 1000
Directors' Responsibilities
The Directors' responsibility statement below has been prepared in conjunction with the Annual Report 2019, whereas this dissemination document contains extracts from the Annual Report 2019 to comply with DTR 6.3.5.
Sir Charles Dunstone - Executive Chairman
Tristia Harrison - Chief Executive Officer
Kate Ferry - Chief Financial Officer
John Gildersleeve - Deputy Chairman
Ian West - Senior Independent Director
John Allwood - Non-Executive Director
Cath Keers - Non-Executive Director
Sir Howard Stringer - Non-Executive Director
Roger Taylor - Non-Executive Director
Nigel Langstaff - Non-Executive Director
Phil Jordan - Non-Executive Director
We confirm to the best of our knowledge:
1. The financial statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and
2. The management report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
Principal risks and uncertainties
Effectively managing risks
The Board has identified the following principal risks and uncertainties to the Group, which the Group seeks to proactively manage and monitor on an ongoing basis. The details of these principal risks, and the controls in place for mitigating them, are outlined below in no particular order of severity. The principal risks have been identified and assessed on a gross risk basis with consideration to the impact on the Group's ability to deliver its strategy and therefore its mission. In addition, a directional arrow has been included alongside each risk to reflect the movements in gross risk from the prior year.
The Group's risk management framework facilitates continuous and ongoing discussion of risks and associated risk appetite to ensure that appropriate focus is placed on mitigating principal risks and significant net risks are included in the Group Risk Register for review at each Board meeting. The Board will continue to assess the principal risks and uncertainties faced by the Group and will update the risks and mitigation plans accordingly.
Management have reviewed the potential impact of Brexit and have concluded the impact will be limited. In addition, management have considered a soft/no Brexit on the Going Concern and viability assessments, together with any other impact on the Group's financial statements.
Gross risk
Gross risk has increased
Gross risk has decreased
Gross risk remains broadly the same as the prior year
Strategic objectives
1 - A happy, stable, profitable Consumer base
2 - Business data provider of choice
3 - Leveraging our network
4 - Driving cost efficiencies
5 - One TalkTalk team
6 - Investing in Britain's Full Fibre future
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Risk and Impact |
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Mitigation |
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1 Customer trust and brand reputation Gross risk remains broadly the same as the prior year 1 2 3 4 |
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Customer confidence and trust are critical to TalkTalk's business and the Company's operating approach always seeks to do what is right for the customer. However, as a value for money connectivity provider in the market, there is a risk that TalkTalk is perceived as a 'budget' provider, associated with price rather than quality and service. Business and industry challenges including cyber threats, scam calls or poor customer experience also present a risk to brand reputation and trust. Failure to maintain trust, improve brand reputation and offer a positive customer experience may result in negative impact to customer satisfaction, increased churn, performance decline or loss of investor confidence. |
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TalkTalk remains confident of the role for a well-regarded value operator in the market and is committed to improving the end-to-end customer experience. TalkTalk introduced its FLPP in October 2016 which continue to resonate strongly with customers and, combined with the ongoing transformation of customer services, the Company has managed to maintain growth in the core business in FY19 which is expected to continue into FY20. The organisation also continues to invest in network and systems to support the provision of reliable products to customers as well as ongoing investment in and focus on security (see Data and cyber security risk). These factors have contributed to a stable risk landscape with steady customer confidence and improving customer satisfaction. In addition, TalkTalk continues to support customers in dealing with the industry-wide issue of scam calls. Initiatives such as the 'Beat the Scammers' campaign and Call Safe are designed to help customers protect themselves from the threat of scams. TalkTalk will continue to focus on existing as well as new customers, guided by the four key principles we believe are critical to being a value for money connectivity provider - simplicity, affordability, reliability and fairness. |
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2 People capability Gross risk has increased 3 4 5 |
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TalkTalk recognises employees as a key asset and aspires to be a 'Great Place to Work' for all colleagues. We understand the increasing challenges and importance in the market of defining an effective operating model and attracting and retaining the right talent to deliver organisational performance and future growth aspirations. Failure to attract and retain required talent and competencies within an effective organisational environment may negatively impact our ability to deliver on performance targets and strategic objectives. Also, in November 2018 TalkTalk announced that the vast majority of its London roles will be moved to a single main campus in the current Salford site by January 2020 to reduce operational complexity and deliver a more efficient focused business. This will lead to further challenges in attracting and retaining talent as roles are moved from the London office to Salford. |
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TalkTalk has established values which act as a cultural framework and are embedded through the business in recruitment and performance management processes. Structured talent forecasting and assessment processes are in place to ensure required talent is proactively understood and actions plans are in place to actively manage attrition risks and succession. These processes also ensure a proactive review of the senior management level to ensure the right leadership is in place for motivating, inspiring and leading the workforce to deliver on the corporate objectives. A people scorecard is also in place for ongoing monitoring and oversight of people risk and, where required, actions to further mitigate risk exposures are identified and implemented. In addition, Group-wide activities are carried out to assess the level of employee engagement and insight gained is used to develop action plans to ensure a highly engaged and motivated workforce is maintained. The move of roles from the London site to the Salford main campus is being governed through a cross-functional programme with close oversight from the Executive Committee and Board. |
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3 Competitive landscape Gross risk remains broadly the same as the prior year 1 2 3 4 6 |
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TalkTalk is established as a value for money connectivity provider in the growing quad play market. The value proposition is a key part of the business model and to date has provided competitor differentiation. Over the last year significant competitor activity has continued with similar intensity to the prior year. The competitive landscape therefore remains largely unchanged with varying degrees of activity in most product channels. The risk that this competitive backdrop makes it difficult for TalkTalk to maintain its value credentials remains consistent with the prior year. |
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A clear pricing strategy is in place with ongoing monitoring of pricing position and value proposition. The strategy is reviewed to ensure it remains competitive and continues to support our position as a value for money provider against the changing competitor activity landscape. TalkTalk FLPP continue to see strong customer take-up. FLPP offers both new and existing customers the opportunity to lock in their price for the term of their contract guaranteeing no mid-contract price rises. The introduction of FLPP, along with the focus on continuous improvement in connectivity, has seen a return to growth across both residential and Business customer bases. The introduction of the new industry leading Wi-Fi Hub in FY19 is driving great improvements in customer experience and the Great Connection Guarantee gives new customers confidence in switching to TalkTalk as they can leave within 30 days if they are not happy with their new Fibre connection. In addition, competitor pricing activity continues to be monitored to understand customer and market impact and plans are revisited accordingly if necessary. TalkTalk uses customer communications to promote its simple, affordable, reliable and fair messages and is committed to helping customers understand the best positioned package to meet their needs. |
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4 Changing market structure Gross risk remains broadly the same as the prior year 1 2 4 6 |
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The Government and Ofcom are committed to promoting investment in Full Fibre networks through infrastructure competition in the UK telecommunications market. BT Group agreed to the legal separation of Openreach in March 2017 and implementation is in progress under close scrutiny by Ofcom. Uncertainty remains about the extent to which this will drive network investment and service quality. Ofcom's Wholesale Local Access Market Review (WLAMR) has led to: • requirements for Openreach to make it cheaper and simpler for competitors to use its existing infrastructure when building networks; • caps on wholesale broadband prices, including a reduction in superfast broadband prices; and • higher service standards for Openreach installations and repairs. The Government has also sought to incentivise network competition, through the FTIR, which included a range of measures designed to make it quicker, simpler and cheaper for a range of companies to build Full Fibre networks. The FTIR complemented existing Government policy, including the Local Full Fibre Networks Programme and the work of the Government's Barrier Busting Unit. Ofcom is currently concluding the BCMR and beginning the Access Review. Together these reviews will govern the future regulatory landscape, including how regulation will evolve as greater network competition emerges. |
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TalkTalk continues to be a vocal advocate of competition and is well placed to benefit from an increasing trend towards a more pro-competition regulatory framework. This poses a significant risk to incumbent players in the market, whilst presenting potentially valuable opportunities for challengers. The business is actively engaging with the necessary external stakeholders, particularly Ofcom and the Government, to share views and attempt to deliver the best market and customer outcomes, as well as to proactively understand and respond to the opportunities and challenges presented by structural market changes. TalkTalk is well placed to benefit from the transition to Full Fibre networks. We are actively engaged with Openreach on product and service developments, including FTTP roll-out plans, in order to pursue favourable outcomes for TalkTalk. Through the creation of FibreNation, we also continue to make good progress on our strategy to invest in an independent network that reaches three million homes and businesses. |
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5 Regulatory compliance Gross risk has increased 1 2 |
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The telecommunications sector is highly regulated, with compliance over key customer-focused regulations monitored by the governing body, Ofcom. Another of the key governing bodies relevant to the Company is the Information Commissioner's Office (ICO). The regulations and laws that TalkTalk must comply with, including Ofcom General Conditions and data legislation, are designed to support customers. Recent changes to the regulatory landscape have increased the obligations on the business. Changes include the General Data Protection Regulation (GDPR), revisions to Ofcom's General Conditions, an amended broadband speed code and the implementation of a system of automatic compensation. Failure to comply with regulatory obligations may result in negative customer impact and/or significant regulatory fines. |
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The Group's Regulatory Compliance Committee, a subcommittee of the Board, has continued to convene throughout the year to monitor the mitigation of operational risks which could give rise to customer complaints and regulatory breaches. The Group Legal Counsel and Company Secretary has chaired weekly compliance meetings throughout the year, attended by senior management. There are clear lines of accountability both in first-line operations and in our second-line assurance function and there has been continued focus on embedding processes and controls to maintain compliance to industry regulations including focus on delivering improvements in our complaint handling processes and reducing complaint volumes. Plans are also in place to deliver the significant volume of regulatory changes which come into force over the next twelve months. TalkTalk has established structured programmes to deliver changes resulting from Ofcom's end-to-end review of its General Conditions. The progress of this activity will be governed by the existing Compliance Committee and meetings to ensure effective delivery. |
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6 Data and cyber security Gross risk remains broadly the same as the prior year 1 2 3 |
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Security of customer, commercial and colleague data poses increasing reputational and financial risk to all businesses and the gross risk remains high. In particular, emerging developments in cyber and data related threats and crime consistent with prior years present a significant challenge in terms of securing data and systems against attack. TalkTalk receives most of its revenue through card transactions and like many businesses utilises third parties as part of doing business. TalkTalk recognises that failure to successfully secure data and systems against attack may have a material impact on brand reputation and financial performance. Other associated costs may also be incurred, including potential regulatory fines. |
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In FY19 TalkTalk has continued to invest in and focus on actively implementing an ongoing programme to build security capability. Investment is also planned to continue in FY20 and beyond. TalkTalk's security strategy is centred around four strategic themes: • Secure by Design; • Secure in Operations; • Secure Third Parties; and • Secure Culture. The strategy is underpinned by the NIST Cyber Security Framework and is positioned to continuously improve the security maturity of the organisation, as well as maintaining and updating ongoing activities (such as monitoring activities, vulnerability scanning, penetration testing and the data loss prevention solution) to ensure they remain fit for purpose. Over the last three years significant investment has been made in building out a bigger security function and capability including successfully establishing an in-house Security Operations Centre (SOC), which launched late 2017. During 2018, further projects were delivered to improve and mature our security control environment and security capabilities. These activities and investments are supporting the management of security risks and evolving security threats. In addition, a robust governance structure remains in place with a PLC Security Committee meeting every two months. This is a subcommittee of the Board, chaired by a Non-Executive Board member, with the CEO and other senior executive representation. Furthermore, there is a monthly Security Committee that is made up of senior management across all of key areas of the business to discuss the latest security threats and risks, approve changes and manage exceptions to security policies, and ensure that security projects are managed effectively. |
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7 Resilience and business continuity Gross risk remains broadly the same as the prior year 1 2 3 5 6 |
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TalkTalk is reliant on its infrastructure as well as key third party suppliers and partners in order to deliver quality products and services to its customers. Network, system or third party failure could result in significant disruption to services or business processes, which may have a negative impact on customers and therefore damage customer loyalty or result in complaints. It is therefore important to establish resilience in the network and systems and also to require resilience from our third parties and partners. The approach adopted for supporting infrastructure and associated resilience, including use of third parties, is regularly reviewed to ensure an optimal model is maintained which drives resilience and efficiency. There is a risk that changes to approach may not be delivered effectively resulting in negative impact to operations. It is also noted that in the event of an incident, TalkTalk must be able to respond in an efficient and effective manner in order to minimise impact on customers and performance. |
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Network resilience is assessed and monitored on a regular basis and again, over the last year, TalkTalk has continued to deliver network analysis, improvements and simplification at pace supporting greater resilience. Continuous monitoring of network availability is also in place to ensure any issues are identified in a timely manner and resilience testing takes place. Where an incident does occur, a robust incident response process is in place and exercised to ensure effective response, followed by a problem management review that is linked to service improvement. The Group recognises that network resilience is also reliant on the dependency on Openreach for the last mile and as such Ofcom focus on Openreach processes, systems and controls should help mitigate the risk. Other prioritised critical processes, systems and third parties are identified, and business owners are assigned accountability for assessing resilience and implementing business continuity plans to enable continuity of operations in the event of an incident. TalkTalk also continues to invest in supporting appropriate resilience on critical systems which will be a key focus for FY20 on a risk-based approach. For third parties, the relationship owners are assigned accountability for requiring critical third parties to have adequate business continuity plans in place and obtaining third party assurance where appropriate that their plans have been reviewed and tested on a regular basis. |
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8 Financial Gross risk has increased 1 2 3 4 5 6 |
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As with many organisations, TalkTalk must actively manage liquidity risk. Other key financial risks include the availability of long term funding, the ability to comply with covenants and other terms of funding arrangements, and foreign exchange and interest rate risk. In addition, there are a number of new accounting standards that either have been adopted in FY19, being IFRS 9 'Financial Instruments' and IFRS 15 'Revenue from Contracts with Customers', or will be adopted in FY20, being IFRS 16 'Leases'. |
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The Group Treasury function is responsible for managing the Group's liquid resources and managing compliance with the terms of funding agreements. Policies and operating procedures are in place and these are regularly reviewed to ensure they remain appropriate for the business. In addition, the Executive Committee and the Board oversee the liquidity, funding position and covenant compliance of the Group on a regular basis and are required to provide approval on major and significant funding decisions. The Group Treasury function is also responsible for managing foreign exchange and interest rate risks in line with the Group's policy. TalkTalk has established projects to deliver the required changes to accounting standards and the status of these projects is tracked as part of the Group's Change Management Framework. |
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9 Change delivery and execution Gross risk has increased 1 2 3 5 6 |
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Delivery of performance and strategic objectives and development of the business are reliant on the ability to successfully deliver innovation and other operational changes required to support growth and performance. Failure to effectively deliver significant change programmes and associated benefits critical to TalkTalk's strategy would result in an inability to deliver performance objectives and limit TalkTalk's competitive position in the market. |
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A formal change framework is in place for delivery of change projects which helps ensure appropriate processes and governance are in place to drive successful project delivery. The framework is intended to ensure a desired level of quality is reached throughout the lifecycle of each project and has continued to support successful delivery of key change programmes in FY19. The Group Change function remains a key effective control for facilitating prioritisation discussions to ensure people and financial resources are appropriately engaged, allocated and focused. Performance measures for key change projects are defined and monitored and regularly reviewed by Group Change. Monitoring and oversight of key change projects occur at both the business unit leadership team level and by the Executive Committee on a regular basis, enabling real time consideration of the potential impact of other operational and strategic activities on change projects. In addition, as part of the organisational reset, TalkTalk has aimed for further simplification by concentrating on fewer, more focused initiatives to support delivery of simplified, clear strategic objectives. This inherently limits delivery and execution risk. |
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